Crude gain, Asia petchem shares mixed as UK goes to polls

SINGAPORE (ICIS)–Global oil prices were higher while shares of petrochemical companies in Asia were broadly mixed on Thursday, amid market jitters as the UK goes to the polls to decide whether it will stay with the EU.

Polling stations in the UK opened at 14:00 Singapore time (07:00 UK time, 06:00 GMT) on Thursday in a vote that will determine if the UK should remain or leave the 28-member EU trade bloc.

At midday Singapore time, (04:00 GMT), August Brent was up 34 cents/bbl at $50.96/bbl, while August WTI gained 46 cents/bbl at $50.31/bbl.

Both benchmarks settled lower in the previous session on worries that the UK will exit the EU – dubbed “Brexit” – and in response to a much smaller-than-expected drawdown in oil inventories in the US.

US crude stockpiles had a 1.7m drawdown last week, according to statistics from the US Energy Information Administration (EIA). It was the fifth consecutive weekly fall in crude inventories in the country.

Market moves in Asia have been mostly muted this week as investors have priced in a “remain” vote win in the UK, despite lingering uncertainty over the referendum, according to market reports.

In Japan, shares of petrochemical companies were higher on Thursday, with Asahi Kasei up 1.64%, Mitsubishi Chemical Holdings 2.15% higher and Mitsui Chemicals rising 2.08%, while the benchmark Nikkei 225 inched up 0.87% at 16,205.38.

In Hong Kong, Chinese chemical giant Sinopec was up by 0.29%, while oil and gas firm CNOOC fell 1.64%. The Hang Seng Index was up 0.49% at 20,876.13.

In South Korea, Lotte Chemical declined 0.35%, while SK Innovation fell 1.37%, in line with the KOSPI Index, which slipped 0.30% to 1,986.67.

In Malaysia, PETRONAS Chemicals Group (PCG) was down 0.47%, while in Thailand, polyester major Indorama Ventures Ltd (IVL) fell by 0.78%.

In the petrochemical physical markets at midday, key petrochemical feedstock naphtha was down by 75 cents/tonne to $434.00-436.00/tonne CFR, tracking the overnight declines in crude oil prices, according to ICIS data.

Benzene prices were slightly lower at $615-626/tonne FOB Korea, while toluene was down $6-9/tonne at $565-589/tonne FOB Korea, the data showed. Propylene prices were unchanged at $730-745/tonne CFR NE Asia.

The UK vote is expected to draw more than 46m participants on Thursday, with recent surveys showing a close call between the “Leave” and “Remain” vote, heightening financial markets volatility.

“The UK’s in-out referendum on its EU membership will be a pivotal point in the nation’s political and economic landscape,” said Commonwealth Bank of Australia in a note.

“The negative impact on GBP [British pound] and broader asset markets from a successful vote to leave the EU should far exceed the relief rally on the back of a “Bremain” vote,” it said.

While the risk of Brexit seems to have faded, financial markets may not have fully appreciated the risk to the global economy, David Riedel, president of US-based Riedel Research Group, wrote in a recent note for investment research and analysis firm Smartkarma.

“While emerging markets are not highly exposed to the UK, a Brexit would trigger a flight to safety which would put additional stress and potentially trigger across the current group of fragile emerging markets,” Riedel said.

A Brexit would have the greatest impact on emerging markets due to its impact on China, he said.

“Europe accounts for 22% of China’s total exports. Pockets of exuberance in Europe are currently supporting Europe’s economic recovery and therefore demand for China’s exports,” Riedel said.

The impact on a potential Brexit is expected to have limited impact on the rest of the world, according to Singapore-based DBS Group Research.

”From a real economy perspective, Britain could fall off the map tomorrow and Asia’s growth would replace it – and add three more – over the next 8.5 years,” it said in a note.

“What people are worried about is the domino effect. In Europe, the worry is that if Britain shoots itself in the foot, others may want to do the same. It sounds so appealing that that’s what markets fear too. A domino effect that transcends economic union and eventually threatens the far more important euro,” the firm added.

Picture: Elizabeth Tower which houses Big Ben, London, Britain (Dinendra Haria/REX/Shutterstock)